In Wilson Mutual Ins. Co. v. Robert Falk and Jane Falk, 2013AP691 & 2013AP776, and Preisler v. Kuettel’s Septic Serv., 2012AP2521, the Wisconsin Supreme Court sought to resolve conflicting court of appeals’ decisions on whether excrement (manure and septic waste, respectively) are “pollutants” under standard insurance policy exclusions when they contaminate groundwater after being applied as fertilizer. The Wisconsin Supreme Court rejected categorically defining manure and septage as “pollutants.” Instead, the Court determined that such fertilizing excrement unambiguously falls within the applicable policy’s definition of “pollutants” once the manure and/or septage has contaminated a water supply.
Facts and Lower Court Decisions
In Falk, the insured was a farm owner that applied cow manure as fertilizer. The manure subsequently contaminated an aquifer and neighboring wells, which resulted in the filing of claims against the farm owner. The farm owner reported these matters to its insurer, which filed a declaratory judgment action to determine whether the damages caused by the contamination were covered by its policies. The policies excluded coverage for bodily injury and/or property damage, “which results from the actual, alleged, or threatened, discharge, dispersal, seepage, migration, release, or escape of ‘pollutants’ into or upon land, water, or air.” “Pollutant” was defined in the policy as “any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor and waste.” “Waste” includes “materials to be recycled, reclaimed, or reconditioned, as well as disposed of.” The trial court concluded that “a reasonable person in the position of the [farm owner] would understand cow manure to be waste,” excluded pursuant to the pollution exclusion. The court of appeals reversed, finding that the pollution exclusion does not apply to manure used as fertilizer, reasoning that to a reasonable farmer manure is “liquid gold.”
In Preisler the insured ran a septic pumping service. The insured agreed to spread septage on its neighbors’ farm fields as fertilizer. The neighbors later learned that their well water had elevated nitrate levels that resulted in their cattle dying at an abnormal rate. The neighbors filed suit alleging that the septage was improperly applied, causing it to leak into the groundwater. The neighbors named several insurers, each of which issued a policy with similarly worded pollution exclusions. The pollution exclusions were functionally the same as the exclusion at issue in Falk. However, unlike in Falk, in Preisler, the court of appeals determined that the pollution exclusion clause precluded coverage for the damages arising out the application of septage that contaminated a water supply.
Supreme Court Decision
The Wisconsin Supreme Court determined that the fertilizing excrements at issue in Falk and Preisler unambiguously fall within the standard pollution exclusions when water supplies were contaminated. In both cases, the Wisconsin Supreme Court’s analysis focused on “the event giving rise to the alleged harm at issue, rather than on an initial event that may have involved a beneficial use of the substance.” With this limited focus, the Falk and Preisler courts determined that manure and septage would reasonably be understood to be “waste” falling within the policies’ exclusions once it seeped into the water supply and caused damage.
Falk and Preisler teach this practical lesson: At least in Wisconsin, absent some other factor, the pollution exclusion will likely bar coverage for water supply contamination arising from contact with manure and septage. Other courts around the country have endorsed this view. As the Falk court noted in Space v. Farm Family Mut. Ins. Co., 652 N.Y.S. 2d 357 (3d Dep’t 1997), a New York intermediate appeals court found manure in well water to be a pollutant. Nevertheless, as Wilson Elser reported in a December 24, 2013, alert, some courts have reached the opposite conclusion. Moreover, even the Wisconsin Supreme Court noted that “limiting principles” will still apply to its examination of whether a substance is a pollutant “to ensure that the construction of a pollution exclusion clause is consistent with the understanding of a reasonable insured.” For instance, the Preisler court noted that the Wisconsin Supreme Court has been hesitant to conclude that a substance is a pollutant when it is “universally present and generally harmless in all but the most unusual instances.” The Preisler court cited to excessive carbon dioxide and monoxide cases as instances when universally present substances are not considered pollutants even when they cause harm. Similarly, the Preisler court noted that a reasonable insured would not necessarily understand the substance to be a pollutant when the harm results from “everyday activities gone slightly, but not surprisingly, awry.”
Furthermore, suppose the insured in Preisler had argued that the pollution exclusion was inapplicable because it was engaged in its “chosen business” – septic service – when the water contamination had occurred. Would that have changed the coverage outcome? In dictum, the court suggests the answer may be yes: “One could wonder what conversation transpired between the insurance agent and the [septic service company] yielding insurance policies that do not cover harm caused in the course of their chosen business. However, the actions of the insurers and their agents are not before us.” (Emphasis supplied)
Future Wisconsin decisions will no doubt determine the answer to this and other questions.